TaxTMI 
TaxTMI 
2026 (4) TMI 1692
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....cials of Branch Office in the Audit reports do not qualify such standalone turnover and gross profits. 3. On the facts and in the circumstances of the case, ld. CIT(A) has erred in not appreciating that for the purpose of attribution of income, gross profit on consolidated accounts of the Head Office has rightly been adopted by the AO." 3. The assessee has raised the following grounds of appeal in ITA No. 194/Del/2015: "Grounds relating to Corporate tax matters - MC Branch office (MC BO) 1. That on the facts and circumstances of the case, the Hon'ble Commissioner of Income Tax (Appeals) - XXIX, New Delhi [hereinafter referred as "Hon'ble CIT(A)"] has: 1.1 grossly erred in fact and law, in rejecting the returned income which declared correct profits attributable to appellant's branch office (BO). The Hon'ble CIT(A) further erred in holding that TPO's role is limited and Transfer Pricing Officer ("TPO") cannot determine profit attributable to Permanent Establishment ("PE"). 1.2 grossly erred in fact and law, in assuming that functions of MC BO carried out for effecting sales in India were not before TPO and were not analysed by the TPO.....
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....to tax in India. 5.2 the Hon'ble CIT(A) has failed to appreciate that appellant's income pertaining to activities of the MC-RS1 PO in India has been offered to tax on costplus arm's length mark-up basis i.e. 9 percent; and that income pertaining to activities of MC- RS3 PO in India has been offered to tax on cost plus arm's length mark-up of 9% and further for local supplies being made under Contract RS3, project management and testing & commissioning activities has been offered to tax on net income basis. 6. Without prejudice to Ground No. 5 above, the Hon'ble CIT(A) has erred in holding that "DMRC sales" are effected through appellant's PO when the sales contracts were entered before Project Offices came into existence. Further: 6.1 the Hon'ble CIT(A) has grossly erred in law in holding that principle of restricted force of attraction is applicable to "DMRC sales" and even "direct sales made by Head Office will be attributed to the PO" when Supreme court in case of Ishikawajima Harima Heavy Industries Ltd. vs DIT [2007] [3 SCC 481] has clearly held that there is no force of attraction in the DTAA between India and Japan. 6.2 the Hon'ble CIT(A) ....
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....al High Court order in appellant's own case. 11. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in directing the Assessing officer to verify appellant's claim for grant of prepaid taxes and not exercising his powers conferred under section 250 of the Act in respect to examine the documents already available on record, and not allowing the credit of such prepaid taxes. 12. The Ld. AO erred in law in initiating penalty proceedings under section 271(1) (c) of the Act. 13. That on the facts of the case and in law, the order is bad in law and liable to be quashed. Grounds relating to Transfer Pricing matters - MC Branch Office ("MC BO") 1. That on the facts and in the circumstances of the case and in law, Hon'ble CIT(A) erred in upholding order under section 92CA(3) the Act passed by the Ld. Transfer Pricing Officer ("Ld. TPO"). 2. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in understanding BO's business model and functional & risk profile. 3. That on the facts and circumstances of the case and in law, without prejudice to any other ground, t....
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....ut considering appellant's contentions with regard to usage of single year data as against the multiple year data used by the appellant, to compute the arm's length price of the international transaction of the appellant using TNMM method. 11. That on the facts and circumstances of the case and in law, and without prejudice to the any other grounds, the Hon'ble CIT(A) erred in not applying the Proviso to section 92C(2) of the Act and not allowing the benefit of an upward variation of 5 percent in determining the Arm's Length Price to the appellant. 12. The above grounds are independent and without prejudice to each other unless mentioned specifically. Grounds relating to Transfer Pricing matters - MC RS3 PO 1. That on the facts and in the circumstances of the case and in law, Hon'ble CIT(A) erred in upholding order under section 92CA(3) the Income Tax Act, 1961 ("the Act") passed by the Ld. Transfer Pricing Officer. 2. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in understanding PO's business model and functional & risk profile. 3. That on the facts and circumstances of the case and in la....
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....fact that the appellant did not have any incentive to transfer the profits to the tax jurisdiction of Japan. 11. That on the facts and circumstances of the case and in law, and without prejudice to any other ground, the Hon'ble CIT(A) erred in upholding the order of the Ld. Transfer Pricing Officer without considering appellant's contentions with regard to usage of single year data as against the multiple year data used by the appellant, to compute the arm's length price of the international transaction of the appellant using TNMM method. 12. That on the facts and circumstances of the case and in law, and without prejudice to any other ground, the Hon'ble CIT(A) erred in not applying the Proviso to section 92C(2) of the Act and not allowing the benefit of upward variation of 5 percent in determining the Arm's Length Price to the appellant." 4. Brief facts are that the assessee is a company based in Japan and is a tax resident of Japan. It carried out trading activities catering to different industries and has different business groups, catering to energy business, Chemicals, machinery, metals etc. For A.Y. 2009-10, the assessee filed its return declaring total ....
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....a taxes were paid with the objective to buy peace with the tax department and the orders of assessment for AYs 199899 to 2004-05 were accepted. 4.1 For AYs 2005-06 to 2008-09, return of income was filed by the A based on the attribution formulae adopted by the AO while framing assessment for AY 1998-99 to AY 2004-05 for maintaining the consistency with earlier years and 'A' paid taxes on all sales made by it to India. However, during assessment, AO refused to follow settlement formulae. Therefore, in appellate proceedings additional grounds were raised by the 'A before ITAT and CIT(A) to determine the correct taxability of LO in India. When the appeals for AYs 2005-06 to 2008-09 came up for consideration before ITAT vide order dated 30th May 2019 (copy enclosed at pages CT-343 to CT-356) it held as under: "7. Undisputedly, initially assesses has sought relief from Id. CIT (A) by applying the agreed formula for AYs 1998-99 to 2004-05 by following the rule of consistency. It is also not in dispute that during the appellate proceedings, assessee raised additional grounds which were admitted. For ready perusal, additional grounds are extracted as under:- ....
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....ined un-adjudicated. 13. In view of what has been discussed above, we are of the considered view that since the assessee has set up a new case by raising additional grounds by departing from the rule of consistency, all the grounds were required to be decided by the Id. CIT (A) on merits. However, at the same time, we are of the considered view that since the assessee has raised many of the new grounds first time before the Id. CIT (A) qua which no material was there before the AO at the time of framing assessment, it would be in the interest of justice to remand the case back to AO to decide afresh after giving an opportunity of being heard to the assessee. Consequently, the appeal being ITA No.4659/Del/2011 for AY 2005-06 is allowed for statistical purposes. 14. In the light of the findings returned in the preceding paras, we are of the considered view that since issue pertaining to AYs 2006-07, 2007-08 and 2008-09 are also identical to AY 2005-06 except the difference that for these years, the assessee has filed appeal before the Tribunal challenging the assessment order passed by the AO pursuant to the direction of Id. DRP but issues raised in the grounds are ....
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....ers. The AO shall consequently consider the same and pass fresh orders in accordance with law. We, in light of the above, also quash the consequential demand and penalty notices also dated 30 November 2021." Post High Court decision as above the AO has passed a draft assessment order dated 31-07- 2025 which is currently pending finalization as it is pending scrutiny by the DRP." 5.1 Ld. AR has also submitted that the assessee has established a branch office in India after obtaining RBI's approval vide letter dated 26.02.2008 and therefore A.Y. 200910 is the first year of operation of the BO. With regard to the closing of LO & commencement of operation of BO during the year under consideration, Ld. AR has made the following submissions: 5. Before proceeding further, it will also be relevant to submit that the LO has been closed, and no activities are being done in LO after March 2008. In his order of assessment for AY 2009-10 {at page 2, top para} it is alleged by AO that "no evidence of closure of LO has been furnished by the assessee". Then at page 20, last para it is further erroneously held by AO that functions performed by LO are now being done by BO, there....
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....sment order} as to why assessment for AY 2009-10 not be framed in tune with conclusions recorded by his in earlier years and therefore "sales made in or through India can be attributable to the BO/LO in respect of all divisions, be not taxable in India". After considering the reply filed by the 'A' it is held by AO that 'A' has undertaken substantial Sales "in or through India" income of which has not been offered to tax in ROI even though it has a BO in India and in earlier years upto AY 2008-09 the 'A' had offered such income to tax in ROI. .................... 9. AO and CIT(A) have erred in relying upon assessments framed for earlier years - Main thrust of case made out by both the lower authorities is structured on the fact that in proceedings years the 'A' acquiesced to taxability in India for direct sales made by all its divisions. AO has erred in adjudicating upon the issue in dispute premised merely upon outcome of earlier year assessment proceedings for AYs 2008-09 and earlier. As stated above in AYs 2005-06 to 2008-09 Hon'ble ITAT vide its order dated 20th May 2019 has held that "assessee has set up a new case by raising additional grounds by departing f....
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....effect from April 1,2008.1 hereby confirm that any of the liabilities of our Liaison Offices in India up to the period ending 31st March, 2008, shall be discharged by MC." 6.1 Accordingly, the RBI vide letter dated 26.02.2008 granted "Permission to upgrade Liaison Office in India to Branch office" The permission letter further mentions as under: "2. Having noted from the documents furnished herewith that your company is engaged in the business of general trading, Reserve Bank of India grants you permission for upgradation of your five Liaison Offices at New Delhi, Mumbai, Kolkata, Bangalore and Bhubaneswar into Branch Offices." The scope of activities of the Branch office approved by the RBI as per annexure to above letter is as under: "2. The Branch Office may carry on the following activities in India: i) Export/Import of goods ii) Rendering professional or consultancy services. iii) Carrying out research work, in which the parent company is engaged. iv) Promoting technical or financial collaborations between Indian companies and parent or overseas group company. v) Representing the parent company in India and acting as ....